On November 1, 2017, the United States Court of Appeals for the D.C. Circuit (“D.C. Circuit”) issued a decision rejecting the Sierra Club’s challenges to the Department of Energy’s (“DOE”) authorizations of liquefied natural gas (“LNG”) exports from the proposed Sabine Pass, Dominion Cove Point, and Corpus Christi export terminals.1
Under the Natural Gas Act (“NGA”) the DOE has exclusive authority to authorize the exportation of natural gas. The agency has, however, delegated to the Federal Energy Regulatory Commission (“FERC”) authority to review proposals to site, construct, and operate related LNG terminal facilities. As such, to export LNG, entities must apply for approval from both DOE and FERC. Under federal law, FERC serves as the lead agency for environmental review under NEPA, while DOE participates in FERC’s environmental review. DOE must independently review FERC’s environmental analysis and determine whether to adopt and/or supplement it.
Sierra Club previously challenged both FERC and DOE authorizations for LNG exports and associated terminal facilities. As we noted in prior client alerts issued on August 16, 2017 and June 30, 2016, available here and here, the D.C. Circuit rejected arguments that FERC inadequately considered Sierra Club’s arguments that exports from the proposed Freeport and Sabine Pass export terminals would (1) induce additional domestic production of natural gas, harming the environment, and (2) raise natural gas prices, resulting in increased reliance on coal-fired generation. In rejecting these arguments, the D.C. Circuit explained that because DOE, not FERC, ultimately authorizes LNG exports, the issues raised by Sierra Club were outside FERC’s “bandwidth.”2 Those cases set the stage for Sierra Club’s challenge, on very similar grounds, to the DOE’s authorization of LNG exports from the Freeport terminal. Ultimately, the D.C. Circuit again sided with the agency, accepting DOE’s determinations (1) not to analyze the potential effects of increased gas production at a local or regional level as it would not have provided meaningful information, and (2) that the connection between higher natural gas prices and potential impacts from increased reliance on coal was too speculative to measure.3
The Court’s Decision
The D.C. Circuit’s brief decision relies heavily on its recently-issued opinion with respect to the Freeport terminal, noted above. In light of that decision, in the court’s view, only three narrow issues required additional consideration.
First, the court found that DOE’s reliance on Environmental Assessments and findings of no significant impact for the Dominion Cove Point and Sabine Pass export applications was appropriate. The court explained that its role in reviewing the agency’s decision not to prepare an Environmental Impact Statement was limited to ensuring that DOE did not ignore “arguably significant consequences” of the major federal action.4 The court held that arguments that DOE’s decision was inappropriate in this case “largely reduce to issues already resolved” in its opinion with respect to the Freeport export authorization.
Second, the court held that the next issue to be addressed related to only the DOE action with respect to the Dominion Cove Point proceeding. The court concluded that DOE did not act arbitrarily or capriciously in deciding not to engage in a more localized analysis of where incremental natural gas production may occur to support LNG exports from Dominion Cove Point. Additional facts highlighted by Sierra Club did not “sufficiently pinpoint the location of additional production as to facilitate meaningful analysis, especially given the fungibility of natural gas and the existence of a national pipeline network.”
Finally, with respect to all three projects, the court found that DOE adequately addressed potential distributional impacts. Specifically, DOE acknowledged the potential for shifting income sources that may not prove beneficial to some segments of the economy, but ultimately found that the exports would benefit the economy as a whole and, absent stronger record evidence of negative distributional consequences, would not be inconsistent with the public interest under the NGA.
The D.C. Circuit’s decision reiterates and refines its views on the adequacy of DOE’s environmental review process. Although future challenges to large-scale LNG export proposals are a near certainty, the growing body of favorable D.C. Circuit decisions provides a body of precedent for developers seeking clarity as to concerns often raised by opponents to such projects.
The D.C. Circuit’s opinion upholding the DOE’s export authorizations for the Sabine Pass, Dominion Cove Point, and Corpus Christi export terminals can be found here.
Please contact one of the authors below or your Baker Botts relationship attorney with any questions.
1Sierra Club v. Department of Energy, Case No. 16-1186 (Nov. 1, 2017) (Dominion Cove Point), Sierra Club v. Department of Energy, Case No. 16-1252 (Nov. 1, 2017) (Sabine Pass), and Sierra Club v. Department of Energy, Case No. 16-1253 (Nov. 1, 2017) (Corpus Christi). Although unpublished, the decision may still be cited as precedent under D.C. Circuit Rules 36(e) and 32.1(b)(1), and nonetheless provides insight into the court’s ongoing position on National Environmental Policy Act (“NEPA”) matters.
2Sierra Club v. Federal Energy Regulatory Commission, 827 F.3d 36 (D.C. Cir. 2016) (Freeport), and Sierra Club v. Federal Energy Regulatory Commission, 827 F.3d 59 (D.C. Cir. 2016) (Sabine Pass).
3Sierra Club v. Department of Energy, 867 F.3d 189 (D.C. Cir. 2017) (Freeport).
4The court cited American Wild Horse Preservation Campaign v. Perdue, No. 15-5332, 2017 WL 4385259, at *12 (D.C. Cir. Sept. 29, 2017) for this proposition.
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